Eurozone CPI rose 2.5% year-on-year, according to a flash Eurostat estimate, having fluctuated between 2.4% and 2.6% over the past five months, with no clear slowdown since hitting 2.4% for the first time in November.
Core CPI remained at 2.9% y/y in May and June after hitting 2.7% y/y in April, with the index stabilizing above the ECB's target of “below but close to 2%.”
The stabilization at high levels is due to increasing demand, as the latest data from April showed producer prices fell 5.7% from a year earlier, losing more than a year of annual growth.
Given the resilience of inflation, the ECB is unlikely to cut rates as aggressively as it has raised them thus far, which may be more similar to the 2011-2015 easing cycle than the emergency cuts of 2008-2009 or the more gradual cuts of 2001-2002.
Such a scenario is relatively optimistic for markets, as emergency rate cuts would be accompanied by a sharp deterioration in financial conditions, necessitating liquidity injections to save markets from collapse.
